Market Overview

Dear Investor,

Happy New Year!

Our first full week back in the markets has seen Donald Trump’s oil grab in Venezuela dominate headlines, yet for all the noise, financial markets have barely flinched. Crude prices have been surprisingly well behaved and broader risk appetite has held up, a reminder that not every geopolitical flashpoint translates into immediate market stress. With that in mind, this felt like a good moment to step back from the headlines and focus on what could really shape returns for UK investors in 2026.

Alongside this, value and income are quietly regaining their appeal. Interest rates have been coming down for over a year and while the Bank of England remains cautious, the direction of travel is clear. At the same time, the FTSE sits at all time highs and is trading on a multiple well above its recent average. In that environment, dependable cash generation, resilient dividends and sensible balance sheets start to matter more again. For a market like the UK, which is rich in these characteristics, that creates a supportive backdrop for patient investors.

That leads neatly to the third and perhaps most important theme. With valuations elevated and returns likely to be harder earned, stock selection is set to matter far more than simply chasing the index. Some businesses will justify higher multiples through earnings delivery and strategic positioning. Others will struggle. The gap between winners and losers is likely to widen, and this is where a disciplined, selective approach can really add value.

Taken together, these themes point to a market that rewards focus rather than frenzy. AI is evolving, income is relevant again, and careful stock picking looks set to trump blind exposure. Taken together, it points to a year where selectivity and discipline matter far more than simply being invested.

Wishing you a very happy and successful year ahead,

Tom

Market Movers

On the rise: BAE Systems (LSE:BA.) +16.6% on the week

Shares in BAE Systems rose this week as defence spending moved back to the centre of political focus. President Donald Trump called for US defence spending of $1.5trn next year and said US contractors should pause dividends and buybacks until weapons production accelerates. That stance weighed on US defence stocks but lifted sentiment towards European names, where investors see fewer constraints and greater flexibility.

Regency View: BAE remains a key name for our FTSE Investor product. The valuation reflects its strategic importance, but strong cash generation, resilient margins and long-term visibility continue to justify its place in a portfolio built for an uncertain world.

On the slide: Shell (LSE:Shell) -6.1% on the week

Shell slipped this week as the group flagged a loss in its chemicals and products division for the fourth quarter, a reminder that downstream earnings remain under pressure. While upstream oil, gas and LNG production guidance was left unchanged, the market focused on softer refining margins and the drag from chemicals.

In isolation, the update was not dramatic, but in a market that has become increasingly sensitive to marginal changes in oil prices, Shell’s shares reacted accordingly. With energy stocks having enjoyed a strong run at points over the past year, any hint of softer earnings momentum is being met with a quick reassessment.

Regency View: Shell remains a high-quality, cash-generative major, but this week’s move underlines how exposed the shares are to short-term swings in oil prices and downstream margins. For now, we prefer exposure elsewhere in the UK energy space, where the risk-reward looks more compelling.

Sector Snapshot

Industrials topped the table this week, boosted by strong moves in defence stocks following Donald Trump’s military action in Venezuela. Utilities also performed well, potentially helped by Storm Goretti in the UK, which has brought renewed focus on domestic infrastructure and grid resilience. Materials, Healthcare and Real Estate added to the upside, giving the rally some breadth.

Energy was the clear laggard, likely weighed down by political uncertainty around Venezuela and concerns over supply dynamics. Consumer Staples also slipped, suggesting investors favoured event-driven and cyclical themes over traditional defensives as the week unfolded.

UK Price Action

The FTSE has started the new year by breaking to fresh trend highs, and importantly this move has held through the week as volume returned to the market. That combination of price expansion and renewed participation is a constructive signal and suggests the breakout is being accepted rather than faded.

Our baseline assumption remains that broken resistance should now transition into support as the trend progresses. As long as the index continues to hold above the prior highs, the path of least resistance remains higher, with any near term pullbacks likely to be viewed as opportunities rather than threats to the broader uptrend.